Fitch rates Lennar’s $350M proposed debt BB+, gives positive outlook for housing sector

Lennar development and the company's CEO, Stuart Miller
Lennar development and the company's CEO, Stuart Miller

Fitch Ratings assigned a ‘BB+/RR4’ rating to Miami-based Lennar Corp.’s proposed offering of $350 million in senior unsecured notes, which the company expects to use to help fund its acquisition of WCI Communities and to possibly repay debt.

The notes, due 2022, were given a rating outlook of “positive.” The ratings are in line with Lennar‘s existing debt.

Fitch said it based its newest ratings on the company’s “strong track record over the past 36-plus years, geographic diversity, customer and product focus, generally conservative building practices and effective utilization of return on invested capital criteria as a key element of its operating model.”

Fitch also noted that Lennar’s management has shown “continuity” during this housing cycle, and it considers the management team “to be the deepest among the public builders” it covers. The company is led by CEO Stuart Miller, who as The Real Deal reported, is building a 120,000 square-foot compound on Star Island, including outdoor space, with underground parking, a lagoon, guest houses and more.

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The positive outlook reflects Lennar’s operating performance in 2014, 2015 and 2016 as well as projected 2017 financial ratios, solid liquidity position and favorable prospects for the housing sector through at least 2017, Fitch said.

On Sept. 22, 2016, Lennar agreed to buy WCI Communities in a cash and stock transaction valued at $23.50 per share or $643 million. The transaction has been approved by WCI’s board and WCI is now subject to customary “no-shop” provisions that limit its ability to solicit alternative proposals from third parties. The deal is expected to close in the first quarter of this year.

Fitch said it expects Lennar to fund the merger with 50 percent cash and 50 percent Lennar stock. As of Nov. 30, 2016, Lennar controlled roughly 159,000 lots, of which about 79 percent were owned, while the remaining lots are controlled through options and joint ventures, Fitch said. Lennar had $1.05 billion in cash for homebuilding as of Nov. 30, 2016 and no borrowings under its $1.482 billion revolving credit facility.

The company has longer term debt maturities in the next two years, including $400 million of 12.25 percent notes due June 2017, $400 million of 4.75 percent notes due December 2017, $250 million of 6.95 percent notes due June 2018, and $275 million of 4.125 percent notes due December 2018. Fitch said it expects the company to refinance a portion of the debt maturities. The latest proposed offering is pegged at $350 million, according to Bloomberg, a Fitch spokesman told TRD.